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First quarter profit for Southwest Airlines

Southwest Airlines has reported first quarter 2010 net income of $11 million compared with a net loss of $91 million for first quarter 2009.

First quarter 2010 results included special items (net of taxes) of $13 million, related to non-cash, mark-to-market, and other items associated with a portion of the company’s fuel hedge portfolio. Excluding special items for both periods, first quarter 2010 net income was $24 million compared to a net loss of $20 million in first quarter 2009.

"We are extremely pleased to report a profitable start to the year, especially in this challenging economic environment exacerbated by persistently high energy costs,” remarked Gary Kelly, the airline’s CEO. “As the quarter progressed, we began to see modest improvement in demand for business travel, as measured by the increase in full-fare traffic. Overall demand for our low-fares and high quality customer service remained strong, resulting in a record first quarter performance for load factor, passenger yield, and passenger revenues. Furthermore, first quarter 2010 operating unit revenues, and the corresponding 19.3% year-over-year increase, represent all-time quarterly records. To achieve this revenue performance in, seasonally, the weakest quarter, is notable. To do so in a recovering economic environment is truly remarkable. Thus far, strong load factor and yield trends have continued in April and, assuming trends continue, we expect another significant year-over-year unit revenue gain in second quarter 2010.”

As anticipated, first quarter 2010 economic fuel costs increased 33% year-over-year to $2.34 per gallon, which included approximately $44 million in unfavourable cash settlements from derivative contracts. For the remainder of 2010, including second quarter, Southwest currently has derivative contracts in place for approximately 65% of estimated fuel consumption at crude-equivalent prices up to approximately $100 per barrel; approximately 40% if market prices settle in the $100 to $120 per barrel range; and approximately 60% if market prices exceed $120 per barrel.

Total operating revenues for first quarter 2010 increased 11.6% to $2.63 billion, compared to $2.36 billion for first quarter of 2009. Total first quarter 2010 operating expenses were $2.58 billion, compared to $2.41 billion in first quarter of 2009. Operating income for first quarter 2010 was $54 million, compared to an operating loss of $50 million in first quarter of 2009. Excluding special items, operating income was $102 million in first quarter 2010, compared to $31 million for the same period last year.

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